"Everybody wants more cash!" declares Capital One bankcard TV pitchman Jimmy Fallon. Except for the cute baby, that is, who throws Cheerios at Fallon when he offers 50 percent more cash back. Perhaps the Capital One baby is a devotee of the "Easterlin Paradox" and rejects the offer of more cash because she believes that more cash can't buy more happiness.

In his seminal 1974 article, "Does Economic Growth Improve the Human Lot?," economist Richard Easterlin noted that while incomes in various countries had increased, reported well-being and survey-recorded life satisfaction had not. In other words, more money didn't make people happier.

For four decades, this Easterlin Paradox has more or less been the conventional wisdom. To explain why more dough doesn't produce more delight, later researchers argued that relative income is what really matters for a person's overall life satisfaction. The implication is that if relative socioeconomic positions don't change when everyone gets richer together, then average happiness in a country doesn't increase. Getting out ahead of the Joneses makes a person happier, but just keeping up with them doesn't.

Other researchers argued that rising incomes put people on a hedonic treadmill, such that when incomes increase people get a short-term boost in happiness, but once they grow accustomed to their new riches and their aspirations grow, their level of happiness drops back to where it was before the raise.

After doing cross-national comparisons of income and happiness, London School of Economics professor Richard Layard concluded, "Above $15,000 per head, higher average income is no guarantee of greater happiness."

The upshot of all this research is that fostering economic growth is futile: When everyone becomes richer, no one becomes happier. In addition, Layard argues that your income competition with the Joneses is a negative externality, because the Joneses' success lowers your relative income, making you feel less happy. (Novelist Gore Vidal summarized this observation with his quip, "Every time a friend succeeds, I die a little.") If the Easterlin Paradox is real, the Capital One baby is right to reject more cash since it likely won't produce more happiness.

In recent years, however, additional research has called the Easterlin Paradox into question. Maybe more cash does make people happier.

Especially salient are analyses done by University of Pennsylvania economists Daniel Sacks, Betsey Stevenson, and Justin Wolfers. In their updated 2010 study, "Subjective Well-Being, Income, Economic Development and Growth," the three compare subjective well-being survey data from 140 countries with those countries' income and economic growth rates. The researchers find that within individual countries richer people are happier than poorer; that the populations in richer countries are happier than those in poorer countries; and that over time increased economic growth leads to increased happiness.

"These results together suggest that measured subjective well-being grows hand in hand with material living standards," they conclude.

Interestingly, the researchers find that a 20 percent boost in income has the same happiness impact, regardless of the initial income. "Going from $500 to $600 of income per year yields the same impact on well-being as going from $50,000 to $60,000 per year."

Obviously, this means that at higher levels of income it takes more money to buy an extra bit of happiness, but the three researchers find no point at which more money will not buy more happiness– certainly not at Layard's benchmark of $15,000 a year.

How much happier are people living in rich countries compared to those living in poor countries? On a zero-to-10 point scale of life satisfaction, Stevenson noted that people in poor countries average three points; those in middle-income countries score around five or six points; and rich country citizens report happiness levels between seven and eight points. (For what it's worth, World Happiness Database reports that the U.S. averages 7.4 points on the scale.) If rich countries are happier places, that would strongly suggest that they got that way by means of economic growth.

Since 1970, in constant 2005 dollars, total world product has more than quintupled from $11 trillion to $57 trillion today. At the same time, world population has increased from 3.7 billion to 7 billion, which means that the globe's average annual per capita income has increased from about $3,000 to over $8,000. Taking into account the trends in all of the well-being survey data, the researchers do find, "Over recent decades the world has gotten happier, and nearly all of the gains are attributable to gains in GDP [gross domestic product]."

There is one outlier in the trend data collected by Stevenson and Wolfers: the United States. As average per capita incomes have increased from around $20,000 in 1972 to $42,000 today, average American happiness has hardly budged. On the other hand, according to their data from the General Social Survey, a robust 86 percent of Americans in 1972 said they were either pretty happy or very happy. The figure was 89 percent in 2006.

What Stevenson and Wolfers also found is that differences in levels of happiness among some demographic groups narrowed. "Two-thirds of the black-white happiness gap has been eroded, and the gender happiness gap has disappeared entirely," they note. The gender difference evidently diminished because American women became a bit less happy than men over time. And the college educated became happier whereas Americans with only a high school education or less became less happy. The researchers speculate that Americans have been unsettled by "a host of economic, social, and legal changes" that have offset the gains in American happiness that one would ordinarily expect higher incomes to have produced.

12 comments

JS November 15th, 2012 | 6:34pm

This is one where its pretty easy to come out with what you want just because it takes a lot of interpretation. As such, forget anything that comes from economists (e.g. Sacks, et al at U Penn). Economics is the modern religion of society and that religion requires that the whole secret to life the universe and everything is constant and maximal economic growth.

The story is somewhat straightforward, but not what economists want people to believe. If you wanted a soundbite for it, it would be to reverse the question: does being poor make you unhappy? Ans: Yes.

But there are two meanings of poor. Absolute poverty is where you are physically threatened by your economic condition. Happiness there is pretty elusive. Relative poverty is alluded to in the article, but spun more as relative wealth. Same thing - sort of, but not really. Relative poverty is that you are poor in comparison to what you take to be your reference groups. The reference group bit is in the social psychology and hard to capture in survey data. But, in general being in absolute poverty is pretty miserable. Relative poverty makes one miserable but less so.

Once you are not absolutely, nor relatively poor, more and more wealth matters little. That's the bottom line. The happiness curve basically just levels out past a certain point of not being poor.

This research has been around for a long time. There's a lot more of it than was noted here. And that's what it says. Does money buy happiness? Sort of. Does poverty produce unhappiness? Yep.

Al November 15th, 2012 | 11:32pm

Money may not buy happiness, but it's a pretty effective stress reliever.

really? November 16th, 2012 | 5:55am

It always cracks me up when people are like I don't care about money blah blah blah. Those are the people that have it and always have probably always will. When you need food shelter and health care and your unemployed money is everything and may not buy you happiness but it may buy you a longer life span. Health care costs, food and shelter costs. Without the cheese you will be on your knees. I know what a house full of money looks like and what little difference it made in my life. It sure does grease the wheels of life though. If you are one of these 99 percenters out here crying about money it's usually because you can't pay back what you borrowed. Buy happiness? Maybe. If you were broke as a joke would nt gettin money make you happy? That would mean you can now buy groceries get a place to live take a shower all those things everyone takes for granted. The truth is yes it would is that bad? Well consider that how much money you have determines the circumstances in which you live. Poverty sucks.

jeezlouise November 16th, 2012 | 8:19am

Happiness huh? These guys do not have a freakin clue. You can be dirt poor and be happy or be rich and be miserable.

It is more about embarrassment, pride and self worth. It is about worrying how to pay the rent or buy food. It is about not letting your parents know you hear them crying.

Money just takes some of the social stigmas away and makes you more acceptable to the posers in life. If you relate this to happiness you have one sorry family life.

omgitspaul November 16th, 2012 | 10:42am

@jeezlouise...can I get an Amen! Money doesn't make you happy or a better person, it makes you more palatable to the "social norm", read: the miserable folks with more money than sense. In our society, money gives you a sense of security.

If your sense of self worth is measured by your bank balance, you are dealing with a negative number anyway.

dan1101 November 16th, 2012 | 3:48pm

Money doesn't buy happiness, but if you don't have enough money in a modern society it's stressful.

really? November 16th, 2012 | 4:09pm

Yep as usual the ones with money who really? don't have a clue. Money does not buy happiness just everything else. Hear your parents crying? Money just takes some of the social stigmas away. Really? it keeps my heat on and food in ma fridge as well as kittys expensive spa treatments on the regular. I could still be happy without heat and food but kitty certainly needs treatments. Money makes you more palatable to the social norm. Really? it sends my kids to college so they can live for their dreams and not live in my basement trolling bout circumstances (bein poor) they have never been in and have absolutely no clue about. Relationships are life's currency for certain, but poverty always has and always will suck.

G Luv November 16th, 2012 | 9:21pm

I'm applying for a million dollar grant to get to the bottom of this.

omgitspaul November 19th, 2012 | 9:08am

@Really? I don't think anyone's touting the virtues of poverty here. I work for a living, I don't have money beyond what it takes to keep a roof over my head and food in my belly. I would certainly feel more secure with a bit more money, but it wouldn't make me happier. Spending my life chasing the almighty dollar isn't living at all. That's not idealistic, that's reality?

really? November 19th, 2012 | 4:04pm

Right you have always had food in your belly and a roof over your head which is why you cannot relate to someone who has not. Money equates to food and the roof so if you were born poor and ever had to go hungry or sleep in a car money would make you happier n hell. Someone in your position maybe money makes no real difference other than like you say a bit more security. But to someone not in your position it means all those things your work for or as you say a living. Basically it's easy to say money makes no difference because you have never had to go hungry sleep in a cold car or tell your kid sorry bout that Christmas when you ain't get jack. I am not saying life is all about money I am saying it costs money and while you may find happiness you won't get far without cash or a scholarship. So you can then get a piece of paper that will demonstrate you are worthy of making a decent living. Otherwise you just stay in the ghetto with all the happy bums who depend on those with money to scrape by happily.

really? November 19th, 2012 | 5:11pm

If you are a breadwinner and want to handle yo bidness for lil mommy and the kids. Ohh dawg you can bet it is all about the money.
If you come from down south and you trying to support moms and pop back home omg lemmetellya somethin it's all about the dollars dog.
Some folks are happy cause they can support dey friends and mommy n daddy yo maybe a lil cuzin. You know some like caveman joint like when I pound my chest and say we did dat! Some folks happy doin whutevir to get that cheese because keepin mommy at home all day with the babies is where it's at for them.
So again. Money don't buy happiness just everything else. Unless your broke in which case it buys everything. And if ya ain't been broke ya can't relate so be glad ya can't understand.

omgitspaul November 20th, 2012 | 8:50am

@really?...I never said money doesn't make a difference. I said it won't make you happy. The difference between poor and working poor is often just work. You have this thing about hating on people who don't see the world through the sh*t colored lenses you do. Unless you're sitting at the library posting these rants, you obviously have enough to have a computer and internet. Judgment, hate and resentment is such a waste of energy.